Kiyosaki and Dent say doom is coming. Does it pay to believe them?

The price of being objective and trying to
be balanced means that you have to learn to deal with doomsday merchants, who I
have to admit, occasionally get it right. That’s why I was prepared to
interview Harry Dent this week, the author of numerous books tipping a great
stock market slump like the one we recently lived through, which I’ve tagged
the Coronavirus crash!

And surprisingly I copped a second dose of
pessimism this week from the famous author of Rich Dad Poor Dad, Robert
Kiyosaki, who also expects another serious leg down for financial markets.

Like all participants in the economic and
markets debates, I afford everyone respect and it’s why I interviewed Martin
North for my Switzer TV Property program this week.

Martin, the founder of Digital Finance
Analytics, who once suggested on Nine’s 60 Minutes, a 40% fall in Aussie
house prices was distinctly possible in 2018, which ended up being more like
12%, thinks the current pandemic, economic shutdowns will play havoc with home
prices.

That’s three negative people to process,
when I think we have a decent chance to get out of this very serious economic
mess without enduring a depression and house price smashing. Note, I lack the
certainty of the more negative ‘experts’ because economies, markets,
governments and central banks can be surprisingly crafty at getting us out of
serious financial jams. That said, policymakers may well be out of luck.

After 35 years commenting on these
subjects in the public media domain, I’ve learnt that positivity and optimism
is actually a better bet than being negative and pessimistic.

My favourite chart, which I often drag out,
proves this point.

That blue line tracks
$10,000 from 1970 to 2009, one year after the 50% stock market crash in the
GFC. It ended up $453,165 via being invested in a portfolio that matched the
All Ords and where dividends were re-invested.

And while the dollar
numbers are mouthwatering, it’s the pervading slope of the line, despite those
big crashes in 1974, 1982, 1987 and 2008-09, along with smaller drops 1994-95
and 2002. That slope screams being optimistic pays off in the long run.

Harry Dent has written
books predicting doom for a long time and only really got it to happen now
because of the “China virus”, as Donald Trump calls it. Personally, we’d made a
lot of our clients more defensive after the 2019 rebound of the stock market
and were planning to go even more defensive before May but we were beaten by
the timing of COVID-19.

Harry wrote The Great
Depression Ahead in 2009, The Great Crash Ahead in 2011, The Demographic
Cliff in 2014 and The sale of a Lifetime in 2016, which tipped a
bubble bursting over 2017-2019, when stocks screamed higher by 45% in the US.

In many ways, the
Coronavirus was the pandemic we had to have because it brought forward a crash
that probably would’ve happened in 2021. Markets always crash and the average
bull market lasts about 9-10 years. This one was into its 12th year.

We also carried a lot of
debt and global economic growth was not great, so we were vulnerable to Harry
being eventually right. But what gets me is how we are more programmed to be
impressed by doomsters, as if they are the keepers of much more wisdom, when my
little blue line says buying and holding quality assets is more rewarding and
therefore more wise.

Anyone who bought the
argument after the GFC that property prices would fall by 40%, as was popularly
canvassed by numerous experts, missed out on a huge property price boom,
especially in Sydney and Melbourne between 2010 and 2017.

Apparently, from our
ancestors who were always on the lookout for woolly mammoths, we are hot-wired
to be on the lookout for danger. “A portion of the brain—the
amygdala—screens everything for negative news. Therefore, humans are wired to
pay 10 times more attention to negative news than positive news,” explained
Wolfgang Fengler, the lead economist at the World Bank.

Warren Buffett has made a
lifetime commitment to not being like the normal person, who can so easily fall
prey to negativity. His mentor Benjamin Graham told us: "Buy when most
people…including experts…are pessimistic, and sell, when they are actively
optimistic."

Summing up our respect of negativity and pessimism
was personal finance expert Morgan Housel, who gave us a well-considered take
on why the scary forecaster commands so much attention.

“Pessimism is intellectually seductive in a way optimism
only wishes it could be. Tell someone that everything will be great and they’re
likely to either shrug you off or offer a skeptical eye. Tell someone they’re
in danger and you have their undivided attention. Hearing that the world is
going to hell is more interesting than forecasting that things will gradually
get better over time, even if the latter is accurate for most people most of
the time. Pessimism can be hard to distinguish from critical thinking and is
often taken more seriously than optimism, which can be hard to distinguish from
salesmanship and aloofness.”

I can’t be sure that there won’t be another big leg
down for stocks but Harry says there will be and cites the history of the Great
Depression and other crashes. Yet Buffett’s take on history is worth noting: “If past history was
all that is needed to play the game of money, the richest people would be
librarians.”

Like it or not, too many of us are hotwired for
negativity. Albert Einstein saw us this way: “Put your hand on a hot stove for a minute and it seems like
an hour. Sit with a pretty girl for an hour, and it seems like a minute.”

No one knows how the anti-pandemic economic
stimulus packages will play out around the world and whether we’ll be crushed
by a second-wave of infections that will close economies down again, but right
now the stock market is into a range because it doesn’t know either - but it’s
leaning to the positive!

Cautious investors could wait about six months and
in that time they could see a great buying opportunity after another big leg
down, or they could wait for another leg up driven by the best-case scenarios
for the virus and the economy. Sure, they will have missed out on the first two
legs up but you could pretty well bet there will be a few years of rising
stocks ahead, if we get out of this Coronavirus calamity.

In 1830, historian Thomas Babington Macauley asked: “By what principle is it that when we see nothing but improvements
behind us, we are to expect nothing but deterioration before us?”

That’s a really good question
but I’m not sure if it will change so many of us who are heavily committed to
all things negative and scary.

To finish off, I must leave
you this from Mark Twain: "I've suffered a great many catastrophes in my
life. Most of them never happened."

You can make money out of
being negative and pessimistic but you will make more out of being positive and
optimistic. That’s one history lesson that will make you and librarians richer
in the long term.

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